The 2024 Autumn Budget brought about the first fiscal event by a Labour Chancellor in 14 years, after of which there were many questions left unanswered about the economic credibility of the new government. The claim of a £22bn black hole that the budget was so irrationally trying to correct was not legitimised by the OBR, creating a sense that this was Labour’s economic programme plan all along. In the months following on from the budget the Chancellor has had to fight to keep her economic narrative intact, with calls for her to resign in the midst of that battle. The main economic issue the government has had to contend with is their plan for growth, with the Chancellor addressing this in her speech last month announcing long- term growth measures such as a third runway at Heathrow Airport.
In response to this speech I made the argument that a fiscal event in the Spring was necessary in order to both keep inflation at bay as well as announcing some shorter – term growth strategies to reinvigorate confidence in the United Kingdom’s economy. This Spring Statement has been fairly steady – as – she- goes, with the Chancellor opting to keep inflation at bay as the sole objective from this fiscal event, in order to keep Labour’s economic credibility intact until the Autumn Budget. The main priority for this Labour government as of present will be to get to the major fiscal event in the Autumn with a fairly credible economic backdrop, where they can then go ahead with more radical policies.
The threat of putting all of your eggs in one basket by holding one major fiscal event a year is that when things do turn sour, as they are right now, your political agenda is what is at stake. The OBR forecast which has been looming around this Spring event has not made a pretty image, with GDP growth being slashed in half from 2pc to 1pc. For a government who’s economic narrative isn’t just built on economic stability but on economic growth, this must be addressed at the Autumn Budget. It would seem the Chancellor has gambled with the government’s credibility by not including major short – term growth measures in this fiscal event.
The FT have reported that the City has had some mixed reactions to the Spring Statement in regard to growth, with a worker in the commercial finance sector describing the mood in Britain was “terrible right now”. The long-term investments announced in February will no doubt strengthen the economy over the next decade, however the lack of short – term plans will come to haunt Labour at the ballot box if they do not act at the next budget as confidence in the UK economy plunges in the interim.
As the Chancellor attempts to correct the books she has also not refrained from making further cuts to Universal Credit, a measure which will save £4.8bn. Labour’s political capital to pull these policy levers is much less so than that of the Tories’, so they cannot make a habit of cuts such as these. This is also a measure which must be compensated at the next major fiscal event with tax cuts, or Labour’s voter base will not be content with the policies they are pursuing. From the perspective of a regular working person all they will see from this Labour administration from an economic view is no growth – as the government have opted for longer investment measures that people won’t feel for some time – as well as relentless cuts to the welfare state. The OBR has put more strain on the Chancellor as they say there is a high risk of Reeves being forced into more tax hikes. The economic picture as of present is somewhat smooth sailing and tolerable for the government, however there is a massive storm on the horizon.
Objectively speaking this fiscal event would put the Chancellor in a position where she believes the ball is still in her court, despite the economic picture in Britain remaining bleak. The programme for government for the remainder of the year will be for the economic picture to stay out of the headlines whilst the OBR statistics remain gloomy, whilst putting domestic and diplomatic policies in the limelight. This will in no doubt be the preferably option for the Prime Minister as they stumble to the budget where more radical policies can be facilitated, whilst with a hopefully more optimistic backdrop from the Office for Budget Responsibility. In the months ahead the Chancellor will in no doubt be drawing plans to weather the storm which is yet to come, which could hinder the economic agenda and credibility of this government.
